We are now at less than one month to April 15, 2015 (tax day). This a day that many taxpayers dread and tax scammers look forward to. Tax scammers are on the loose looking for their next victim. That’s why Kingdom First is encouraging you to be vigilant against tax scams. Tax scams come in many forms and while most of them are committed in the first quarter of the year, tax scammers are open for business year-round (there is no rest for the wicked).
Here are a tax scams to avoid:
1. Identity Theft – The scammers typically file early in the season, beating you to the punch. And when you file, you find out that your identity has been stolen. If you receive a notice from the IRS that more than one return has been filed using your Social Security number, your identity has been compromised.
In 2011, the IRS’ Taxpayer Advocate Service received more than 34,000 tax identity theft cases, a 97 percent increase over 2010.
Here are some tips to help you protect your identity:
- Don’t carry your Social Security card or other information with your Social Security number (SSN) with you.
- Don’t give businesses your SSN just because they ask for it. Give it only when required.
- Check your credit report every 12 months and challenge unusual activity.
- Keep personal information in your home secure.
- Protect your personal computer with firewalls, anti-virus software, security patches and change your passwords regularly.
- Don’t give out personal information over the phone, mail or the Internet unless you know who you’re dealing with.
2. Phone scams – This type of tax scams target vulnerable people, like the elderly and new immigrants, with arrest, deportation or the loss of a driver’s license. Remember that the real IRS wouldn’t call when or demands payment or asks for credit card or debit numbers over the phone. Nor does it ask for personal or financial information by email, text or social media. If you get what you suspect is a scam call, report it to TIGTA through its web site or call 800-366-4484.
Don’t give out your personal information if someone calls claiming to be from the IRS regardless if it is to collect or to issue a refund.
3. Phishing emails – Tax scams can take the form of e-mails, phony websites or phone calls that offer a fictitious refund or threaten an audit or investigation to lure victims into revealing personal information. Here the victim gets an email claiming to be from the “IRS” stating that the consumer is due a refund and needs to click on a link and enter their personal financial information in order to have it processed. Please forward suspicious scams to the IRS at firstname.lastname@example.org. You can also visit www.irs.gov, keyword phishing, for additional information.
The IRS will never contact you via e-mail, texts, or social media. Do not give out personal information in response to communications that come in such manner.
4. Promises of big refunds or “free money” – Beware of tax preparers who promise huge refunds if you split it with them or simply promising “outlandish” tax refunds. Also, remember that there’s no such thing as free money from the IRS or Social Security. Beware if your tax preparer asks you to sign a blank return or not give you a copy of the return he files for you. Or he may tell you that your refund should be deposited directly into his account first, and then he’ll deduct his fee from it before paying you.
5. Hiding income offshore – Taxpayers have tried to avoid or evade U.S. income tax by hiding income in offshore banks and brokerage accounts, or by using offshore debit cards, credit cards, wire transfers, foreign trusts, employee-leasing schemes, private annuities or life insurance plans. U.S. tax filers who have offshore accounts and don’t report them (or who naively fall for scammers selling an offshore tax scheme) may face large fines and penalties. Taxpayers are best served by coming in voluntarily and getting their taxes and filing requirements in order, do not wait to be contacted by the IRS on this matter.
Hiding income in offshore accounts is considered tax evasion.
6. Shady tax preparers – Most tax preparers are honest. However, there are some who are engaging in tax scams. When using preparers make sure they:
- Have a Preparer Tax Identification Number (PTIN) for 2015. This certifies the person is authorized to prepare federal tax returns.
- Don’t base their fees on your refund. And always have your refund sent directly to you or your bank account.
- Can e-file returns. Tax professionals who prepare more than 10 returns must be able to file returns electronically.
- Are available after April 15. You may need to contact your preparer if questions about your return arise.
Never sign a blank or incomplete return since you’re legally responsible for the information. So check that there are no error and get all your questions answered before signing it.
If you think you’ve been had, report it to the IRS using Form 14157 and Form 14157-A.
7. Abusive tax shelter – If you are presented with a complicated scheme that promises to eliminate your tax bill, think twice. This is usually accomplished through abusive tax shelters in which the promoter moves your income-producing assets – including businesses you own – into a trust, limited liability company (LLC), limited liability partnership (LLP), international business company (IBC), or foreign financial account. Regardless of the structure, business owners, physicians and other high net-worth filers can be snookered by someone who backs up a scheme with official-looking documents to make it seem legal. Ask the promoter whether he’s collecting a referral fee, and get a second opinion about the set up from a trusted, independent tax adviser.
If you get caught, it could mean large penalties, interest and even criminal prosecution.
Again, be vigilant about doing your homework on your tax preparer and on the tax laws. Every year, new fraudulent methods to scam and steal from consumers and the IRS come to light. Don’t be a victim because you failed to do the necessary research to protect yourself.